Constitution

This article is written by Anmol Singla. The present article provides a comprehensive analysis of the judgement given by the Hon’ble Supreme Court in the present case. It sheds light upon the facts of the case, the application of the law and a critical analysis of the judgement delivered by the court.

Introduction 

“The legislative cannot transfer the power of making laws to any other hands: for it being but a delegated power from people, they who have it cannot pass it over to others.”  – John Locke.

The view of Locke on delegated legislation can be said to be outdated considering that modern society has an increasing number of needs and wants. Moreover, with increasing avenues due to industrialisation and development, the number of issues that require legislation is increasing. In such a scenario, it is not possible for the legislature to enact each and every piece of law by itself without assistance. In order to maximise efficiency and ensure adjudication on a larger number of issues, certain matters are delegated to the executive. This practice is known as “delegated legislation.” Cecil Carr defined delegated legislation as “a growing child called upon to relieve the parent of the strain of overwork and capable of attending to minor matters, while the parent manages the main business.” The Supreme Court of India in the instant case, i.e., Sukhdev Singh & Ors. v. Bhagatram Sardar Singh Raghuvanshi and Another (1975), provided clarity with regard to the status of the public sector companies in India under Article 12 and the validity of delegated legislation under their respective statutes. The judgement is also significant for the employees since it ensures that they can only be dismissed on valid grounds. Moreover, it also provides them with the power to approach the Constitutional Courts if they feel that an action taken against them is in violation of the principles of natural justice. 

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Details of the case 

Name of the case- Sukhdev Singh v. Bhagatram Sardar Singh Raghuvanshi

Citation of the case- (1975) 1 SCC 421, 1975 (30) FLR 283, 1975 LABLC 881, (1975) ILLJ 399 SC, (1975) 1 SCC 421, [1975] 3 SCR 619.

Name of the petitioner- Sukhdev Singh

Name of the respondent- Bhagatram Sardar Singh Raghuvanshi

Date of Judgement- 21.02.1975

Bench- Constitutional Bench

Judges- A.N. Ray, K.K. Mathew, Y.V. Chandrachud, A. Alagiriswami, and A.C. Gupta

Background of Sukhdev Singh v. Bhagatram Sardar (1975) 

The case is an appeal filed before the Hon’ble Supreme Court against the decision of the Delhi High Court. It involved questions pertaining to employment regulations and the legal status of corporations established through a statute under Indian law. The case is important with respect to the applicability of Constitutional Rights in the matter of employment. The organisations in question, namely ONGC, LIC, and IFCI, could only have fundamental rights enforced against them if it was accepted that they were State under Article 12 of the Indian Constitution. The Supreme Court was posed with the question of whether such organisations were liable to enforce the Fundamental Rights of citizens. The case also raised issues regarding the violation of Fundamental Rights, particularly Articles 14 (equality before the law) and 16 (equality of opportunity in public employment), highlighting the need to ensure constitutional principles within organisations carrying out public duties.  

Issues before the Court 

  • Whether an order for removal from service contrary to the regulations framed under the Oil and Natural Gas Commission Act, 1959; Industrial Finance Corporation Act, 1948; and Life Insurance Corporation Act, 1956, would allow for a claim to declare continuance in services or only a claim for damages will be maintainable?
  • Whether an employee of a statutory corporation can claim protection under Articles 14 and 16 of the Indian Constitution?
  • Are the regulations framed through delegation under the statutory act binding on the parties and have the force of law?
  • Whether a public corporation of the nature of the Oil and Natural Gas Commission, Life Insurance Corporation or Industrial Finance Corporation is a ‘state’ within the meaning of Article 12 of the Constitution?

Arguments of the parties

Contentions of behalf of the employees 

  • The regulations are made under the statute. 
  • The power to make the regulations originates from the statute. This means that the regulations are binding in character. 
  • The regulations have the force of law since they are an outcome of the exercise of power by the statutory authority.
  • The statutory authority cannot make any departure from the regulations. 

Contentions on behalf of the State

  • The regulations are framed under powers given by the statute affecting matters of internal management. 
  • The regulations do not possess any statutory binding character. 
  • The terms and conditions for employees that have been laid out in the regulations are not a result of statutory obligations. 
  • The regulations are binding as a contract and not as a law. 
  • The regulations do not have any force of law. 
  • The employment of each person is contractual in nature. 

Legal aspects involved in Sukhdev Singh v. Bhagatram Sardar (1975)

The case is a landmark in the legal history of India. A number of important legal aspects are explored in this case by the Supreme Court. 

Constitutional validity of State actions

The case examines how the actions taken by the public sector corporations are in compliance with the provisions of the constitution. The court ensures that the State is not given a free hand to take adverse actions, and principles of fairness, reasonableness, and constitutional compliance govern its actions.

Delegated legislation

Delegated legislation relieves the burden on the legislature and improves the efficiency of law-making. It helps to ensure that issues requiring urgent attention are handled with care. Salmond has defined delegated legislation as something “which precedes any authority other than the sovereign power and is therefore dependent for its continued existence or validity on some superior or supreme authority.” The power to delegate is not absolute and is subject to certain limitations. The Parliament is not allowed to abdicate itself from all responsibility by creating a parallel legislature. 

Moreover, the “essential legislative powers” must only be exercised by the legislature and not delegated. “Essential Legislative Power” means laying down a policy of law & implementing it into abiding rules of conduct. The delegated legislative powers are not immune from the process of judicial review and can be struck down if they violate any Constitutional Principles or the Principles of Natural Justice. 

Principles of Natural Justice

The Principles of Natural Justice become a key component whenever the court is faced with a question regarding the validity of an administrative action. These principles include some basic rights, such as the right to be heard, the right to have a fair and impartial hearing before termination, and the right to be treated as per the proper procedure laid down in the statutes or regulations. The court is empowered to declare any action, rule or regulation that violates the principles of natural justice to be void.

Article 12 of the Indian Constitution 

Article 12 is important in determining the scope and applicability of fundamental rights. The term ‘State’ is defined in this article. It includes not only the executive and legislative branches but also authorities created by statutes within India. The broad definition ensures that fundamental rights bind the entities that exercise significant governmental functions. This ensures that individual liberty can be maintained and a level of accountability remains in public administration. The state has been clearly defined to include – 

  1. The Government and the Parliament of India;
  2. The Government and the Legislature of each of the States; 
  3. Local Authorities; or 
  4. Other Authorities. 

All additional authorities that do not fit into the first three categories are included in other authorities. Neither the General Clauses Act of 1897 (defining clause) nor the Constitution define the term “other authorities.” This phrase currently encompasses several authorities because it has been broadly interpreted thus far through a variety of rulings. All local governments with the ability to enact laws and who are viewed as state agents are referred to as local authorities. The determination of which bodies fall under this group is not governed by any rigid guidelines. Several cases have established standards or directives in their rulings.

The Supreme Court ruled in Rajasthan Electricity Board v. Mohan Lal (1967) that all authorities established by the Constitution and other statutes with legal authority shall be included in the definition of “other authorities” under Article 12. It is not necessary for the statutory body to carry out sovereign or governmental tasks. The Court noted that the Rajasthan Electricity Board, in this particular case, has the jurisdiction to issue directives, the disobedience of which was considered a criminal act.

The respondent in the case of U.P. State Warehousing Corporation v. Vijay Narayan (1980) worked for a statutory organisation. Theft and misappropriation were the accusations made against him. He was relieved of his duties without being given an opportunity to be heard. He petitioned the High Court for a writ of certiorari under Article 226. This writ was rejected by the Single Bench. The Divisional Bench of the High Court allowed the petition, stating that the dismissal order was invalid because the corporation, which was supposed to function in a quasi-judicial capacity, neglected to give the fired employee an opportunity to be heard. The Supreme Court ruled that the Uttar Pradesh State Warehousing Corporation qualified as a State due to its formal establishment under an Act. Given that the state owned and controlled it, it was considered a tool of the state.

Therefore, it can be seen that the definition of ‘State’ under ‘Article 12’ of the Indian Constitution has been a subject of debate, and judicial interpretation has helped provide clarity around the applicability of the Article to different authorities. The classification of an authority as a State means that it is responsible for the protection of the Fundamental Rights of the people. Writ petitions can be filed against it in the High Court or the Supreme Court if it is discovered that its actions are in violation of the Fundamental Rights of the people. This differentiates the organisations classified as State from other Companies registered under the Companies Act, 1956 and Companies Act, 2013. A right against a company is a private right. An allegation of violation of fundamental rights cannot be levelled against such a company. This sets normal companies apart from authorities classified as State under Article 12 of the Indian Constitution.

Judgement in Sukhdev Singh v. Bhagatram Sardar (1975)

The Court examined the relevant sections under the following Acts:

  • Oil and Natural Gas Commission Act, 1959 (‘ONGC Act’) – Section 12 of the Act allowed for a Commission established under the Act to appoint employees for the company as deemed necessary by them. Every person appointed under the provision became an employee of the company under Section 13 of the Act. Section 31 of the Act empowered the government to make rules for deciding the term of office, manner of filing up vacancies, conditions of service of members, disqualification from membership and procedure to be followed when removing an employee. Section 32 of the Act empowered the Commission to make rules and regulations with the approval of the Central Government. 
  • Industrial Finance Corporation Act, 1948 (‘IFCI Act’) – Section 42 of the Act empowered the Central Government to make rules to give effect to the provisions of the Act. Further, Section 43 empowers the Board established under the Act to make regulations for giving effect to the Act as long as they are not inconsistent with the provisions of the Act. 
  • Life Insurance Corporation Act, 1956 (‘LIC Act’) – Section 11 of the Act provided that the existing employees of the insurer were now employees of the corporation. They were to hold their rights and duties with the corporation unless their employment was terminated or the remuneration, terms and conditions were altered by the corporation. Section 48 of the Act allowed the Central Government to determine the appointment and remuneration of employees. Section 49 of the Act further empowered the Corporation to make regulations for giving effect to the provisions of the Act. 

Regulations – law or not under the statute

The Court further proceeded to examine the English Law on the subject. Subordinate legislation is made by a person or body that is empowered to do the same under a statute. The terms ‘rules’ and ‘regulations’ limit the power of the statutory authority. They are meant to ensure that the body does not exceed the power conferred to them under the statute. If the power is used in an excessive manner, the action is declared to be a nullity. A validly made subordinate legislation has the effect of a statute. If there is any damage done as a consequence of such an act, the right to take action by the aggrieved person is the same as that of an act done directly under the authority of a statute. (Re Langlois and Biden, (1891) 1 Q.B. 349) Furthermore, an order has been distinguished from rules and regulations. An order is not a part of statutory rules and is treated as administrative. 

When legislation is done by departmental regulations, it results in a saving of time. Moreover, it allows for consultations with experts on the subject matter and allows flexibility since the Parliament cannot envision every hurdle that may arise when implementing the law. The Court observed that the corporations, i.e., LIC, ONGC and IFCI, do not have any free hand in framing the conditions and terms of service of their employees. The regulations under the statutes have been described as “status fetters on the freedom of contract.” The regulations are binding on both the authorities and the public. Article 309 of the Indian Constitution specifically provides that there should be specific power for framing rules and regulations. 

Criminal litigation

The Court nullified the argument of the Additional Solicitor General, who contended that the regulations cannot have the force of law since they are similar to the ones framed by a company incorporated under the Companies Act, 2013. The Court distinguished between a company under the Companies Act and the bodies established under statutes. It was stated that a company comes into existence when it complies with provisions under the Companies Act. However, LIC, ONGC and IFCI are established under their own statutes, and the regulations framed by them are a result of the power given under the respective statutes. 

The Court analysed a number of cases pertaining to the dismissal of employees by bodies established by statute. In the case of Mafarlal Naraindas Barot v. Divisional Controller S.T.C. (1966), the Hon’ble Supreme Court held that the services of an employee cannot be terminated without following all the regulations under the statute. The action of a statutory body, if in breach of the mandatory obligation under the statute, can be declared invalid by the court. This was held in the case of S.R. Tewari v. District Board Agra (1964).

In the case of Life Insurance Corporation of India v. Sunil Kumar Mukherjee (1964), LIC framed regulations under the Act. Section 4(3) provided conditions to terminate the services of a field officer. However, Section 11(2) of the Act also included provisions for penalties and termination of services under Section 10. The employee contended that services can only be terminated under Section 10. The Court reconciled the provisions under Section 10 and stated that the termination has to be carried out in accordance with Section 10. The termination was deemed invalid since it was not in accordance with Section 10. The regulations that had been framed under the Act were deemed to have the force of law.

Both rules and regulations are subordinate legislations under statutory powers. A regulation that is framed under a statute applies uniformly to everyone being governed under the statute belonging to the same class. ONGC, IFCI and LIC are obligated by statutes to frame regulations for the conduct and conditions of service of their employees. The authorities cannot stray from the conditions of services, and any deviation from the same can result in the action being deemed invalid by the courts. The employer and employee are both bound by the conditions. If there has been a breach, it does not amount to a mere breach of contract. There is an element of public employment or service and the rules and regulations of the statute have to be strictly observed. If they are not observed, the aggrieved party can approach the courts for the same.

Nature of LIC, ONGC and IFCI under Article 12

The Counsel appearing on behalf of the corporations contended that since the corporations cannot make laws or enforce directions, they cannot be treated as a State under Article 12. However, the Court observed that in a welfare state, a number of commercial functions are undertaken by the state in combination with Governmental functions. The Governmental functions have to be authoritative. The concerned body should have the authority to impose the decision, and it should be of a binding character. Since the rules and regulations control not only the powers of the corporation but also the persons dealing with them, they are authoritative in nature. 

In the case of Rajasthan State Electricity Board, Jaipur v. Mohan & Ors. (1967), the Court said that an “authority is a public administrative agency or corporation having quasi-governmental powers and authorised to administer a revenue-producing public enterprise.” The Court held that Article 12 had a wide scope and included within itself every authority that is created by a statute, functions within the territory of India and is under the Indian Government’s control. The powers conferred upon such an authority are conferred by law. Another important feature of a state is the power to issue directions and enforce compliance.

ONGC

The authority of the Central Government is established under the Oil-Fields (Regulation and Development) Act, 1948 (‘1948 Act’) and the Oil and Natural Gas Commission Act, 1959 (‘1959 Act’). The 1948 Act allows the Government to make rules for mining leases, conservation of mineral oils, and enforcement of penalties for contraventions. Further, under the 1959 Act, the powers and functions of the Oil and Natural Gas Commission are provided. It has a role in planning, promoting, and implementing programs for petroleum development under the Central Government’s direction. The Central Government also has authority over the Commission’s members, budget, land acquisition, borrowing powers, and dissolution. This shows that the Government exercises a considerable degree of control over the functioning of the ONGC. The Central Government has authority and agency over land acquisition and powers of entry. 

LIC 

The Life Insurance Act, 1956, nationalises the Life Insurance business in India. LIC is established as an agency of the Central Government under the Act. LIC received all existing business from insurers, which included assets, liabilities, and employees from existing insurers. It was given the exclusive privilege to conduct life insurance business in India. If the corporation profits from any other business, the balance of profits is to be paid to the central government after making provision for reserves and other matters. In matters regarding policy and public interest, the Central Government has the final decision. The accounts of the corporation are also audited with the Government’s approval. Furthermore, the reports are submitted to the Central Government. The surplus reserves of the corporation are allocated to the policyholders and then to the Central Government. LIC can only be wound up through an order of the Central Government. This makes it clear that the corporation is an agency of the Central Government that exercises a certain degree of control over it. 

IFCI

The IFCI is a body corporate. Its shares were issued to specific entities, including the Central Government, the Reserve Bank of India, scheduled banks, insurance companies, and cooperative banks. The shares with the Central Government and RBI are transferred to the Development Bank, and they are paid compensation. The Central Government guarantees the repayment of principal and annual dividends on IFC shares. IFCI is empowered to take over and manage industrial concerns. Moreover, the financial statements are to be submitted to the Central Government and published in the official gazette of India. The affairs of IFCI are guided by a board, which functions under the supervision of the Development Bank and the Central Government. The Central Government also guarantees the funds, bonds, securities and debentures issued by the IFCI. The accounts of IFCI are examined by the Comptroller and Auditor General of India. The Central Government can acquire the shares from the other banks, and they can be transferred to the Development Bank. This can be used to establish control of the Development Bank. These provisions make it clear that the management and control of the organisation vest with the Central Government.

Decision on whether they are authorities Article 12

The Court took the view that ONGC and LIC are both owned by the Government. The management and the dissolution of the body also vest with the Government. The IFCI, on the other hand, sees complete control and management of the Central Government. The citizens of India cannot be shareholders. The Central Government has complete power to acquire shares and transfer them to the Development Bank at any time. Moreover, the power of dissolution also vests with the Government. 

A contention made against the granting of status as an authority under Article 12 to ONGC and IFCI was that they are not granted immunity from taxation. For this, a reference was made to Article 289 of the Constitution. However, Article 289 does empower the Union to impose taxes on trade or business carried on by or on behalf of a State.

ONGC grants the power of entry to Commission employees on land or premises for lawful work. Members and employees are deemed public servants under Section 21 of the Indian Penal Code. They are provided protection under the Act. The LIC Act imposes penalties for withholding or misusing property transferred to the Corporation. The offender can face imprisonment for up to one year, a fine of up to one thousand rupees, or both. The Corporation is protected for actions taken under the Act. The IFCI Act penalises false statements in documents given to the Corporation for security. Offenders may face imprisonment for up to two years, a fine of up to two thousand rupees, or both. It further prohibits unauthorised use of the Corporation’s name in prospectuses or advertisements. Offenders may face imprisonment for up to six months, a fine of up to one thousand rupees, or both. The corporation is protected from actions taken under the Act. These privileges and protections are not afforded to companies that are incorporated under the Companies Act, 1956.

This led the Hon’ble Supreme Court to arrive at the decision that the regulations and rules framed by the Oil and Natural Gas Commission, the Life Insurance Corporation and the Industrial Finance Corporation have the force of law. Further, there is no question as to whether these corporations are authorities under ‘Article 12’ of the Constitution. 

Final judgement 

The Court held that the rules and regulations framed by the Oil and Natural Gas Commission, the Life Insurance Corporation and the Industrial Finance Corporation have the force of law. The statutory status of the bodies is also available to the employees and they are entitled to be declared employees, especially if their removal or dismissal is in contravention of statutory provisions. The statutory bodies were held to be State under Article 12 of the Constitution. 

Rationale behind the judgement 

The judgement provided by the Hon’ble Supreme Court in the present case deals with the powers of the Oil and Natural Gas Commission (ONGC), Life Insurance Corporation (LIC), and Industrial Finance Corporation (IFCI) to frame rules and regulations. It has further deliberated upon the status of these corporations as ‘authorities’ under Article 12 of the Indian Constitution. The rationale behind the judgement has been discussed.

The regulations framed by the corporations were held to have the force of law. The regulations were made in continuation of the powers given under the statute. They are not merely contractual agreements between an employee and an employer. They are binding on both the authorities and the public. The corporations cannot exceed the power given to them under the statute. The employees of these corporations are protected under the statutory provisions that govern their employment. If they have been dismissed without compliance with the statutory provisions, the dismissal can be invalid. 

Article 12 of the Indian Constitution defines the term ‘State’ to include authorities that have been created by statutes within India. These authorities should also possess a degree of government control to be classified as a state. In order to determine whether bodies like ONGC, LIC, and IFCI fall under this definition, the court examined the nature and functioning of these bodies. It was determined that these bodies fall under the definition of ‘State’ under Article 12 since there is substantial government control over their functioning. The government has widespread powers to audit accounts, frame regulations and even dissolve the bodies if needed. Moreover, they are established by a statute and are distinguishable from companies established under the Companies Act. These bodies play a key role in the promotion of public interest and welfare. Moreover, their commercial functions are often intertwined with governmental functions.

Critical analysis of Sukhdev Singh v. Bhagatram Sardar (1975)

The Supreme Court clarified the status of Public Sector Enterprises having substantial control over the Government and applicable statutory provisions as ‘State’ under Article 12 of the Constitution. It imposes a greater degree of responsibility upon these bodies since they are performing public functions, and employer-employee relationships are not merely a private contract. The rights and duties under the statutory provisions become binding on both the employees and the employer. Non-adherence to statutory provisions allows for action to be taken under the provisions of law. This shows that these bodies play a key role in public service and welfare. They are also significant in promoting socio-economic objectives aligned with public interest. The judiciary, yet again, plays a key role in upholding judicial integrity and the constitutional principles that govern these vital institutions. 

Conclusion 

We often hear, “A job in a PSU is like a government job.” The judgement of the Supreme Court in the instant case further reaffirms the government-like character of PSUs. The job security afforded to an employee of a PSU is much greater than that of a regular employee. The grounds of appeal are broader, and the principles of natural justice must necessarily be followed. If there is a dismissal in contravention of the regulations or against the principles of natural justice, it can be disallowed and the employee reinstated. The corporations established under a statute in India play a major role in the advancement of national objectives and in serving the public welfare. The judgement plays an important role in Indian Legal Jurisprudence as well, since it clarifies the nature of such bodies under Article 12 of the Indian Constitution and ensures that even Fundamental Rights are enforceable against such organisations.

Frequently Asked Questions (FAQs)

Does India follow delegated legislation?

Yes, India is the world’s largest democracy and delegation of legislation is a must for its smooth functioning. Laws, rules, regulations and more have to be framed for a number of different spheres, including cyber laws, criminal laws, social media regulations and more. The legislature cannot handle the task by itself and delegation is necessary to ensure laws keep pace with changing times. 

What is the threefold justification for delegated legislation?

  • The parliament has limited time, and delegation increases efficiency. 
  • The subject matter may be technical and require expert consultation. 
  • There is a need for flexibility, considering some difficulties are only known after the statute begins to operate. 

What are Public Sector Undertakings (PSUs) and Public Sector Enterprises (PSEs)?

For an enterprise or undertaking to be classified as public sector, 51 percent or more of the share capital should be held by the Government of India or State Governments or Joint Ventures between multiple Public Sector Enterprises.

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